Built to Last
A Business Insurance Guide for Architects, Engineers, and Design Professionals

As a self-employed engineer, architect, or design professional, you probably have a good handle on what a "risk" is. When you own a business, you invest time and money into your services, and you hope for a profit in return. Still, you understand that there are factors outside your control that can trigger losses. And that's what risk is about: the chance of suffering a loss.

You can reduce these chances with a risk management plan. A solid plan will…

Identify and evaluate threats to your business.

Determine which threats require action.

Enact measures to address threats.

No two design businesses are the same, so it makes sense that every business should be assessed on its own terms. But there are areas of potential risk that most design firms share. That's a good place to start when you build your own risk management plan. Here are a few areas of potential risk to consider:

Compliance with Rules, Regulations, Laws, and Requirements

Part of your professional duty is making sure that projects adhere to state and local laws to protect the safety of the public, your clients, and the professionals you work with. Failing to uphold these standards could result in tragic injuries, costly production delays, and financially devastating lawsuits.

Because of the stakes, architects and engineers understand this facet of their job well. However, they may be surprised to find out that they are subject to following other rules, especially when supervising a project on a construction site. For example, architects and engineers must adhere to the Occupational Safety and Health Administration (OSHA) guidelines when visiting a site. These requirements include using personal protective equipment. If you visit a location owned by someone else, you must adhere to that company's safety and business plans.

When working at a client's construction site, you must adhere to federal and company safety regulations.

Personal Liability

Unless you specify otherwise, your consulting or contract work is considered a "sole proprietorship" in the eyes of the law. When you run a sole proprietorship, your personal assets are not legally separate from your business assets. That means if you incur a business debt, the courts can dip into your personal bank account and assets when your business account can't cover the claim.

Operating as a sole proprietorship without liability insurance can jeopardize your personal assets.

To address this issue, you have a few options. You can keep your business structure as a sole proprietorship, so long as you carry adequate business insurance to protect your personal assets. Or, you can set up a limited liability company (LLC). This business structure distinguishes your business's identity from your personal one. In the event of a business debt, your personal accounts are protected. However, establishing an LLC does not offer any other kind of liability protection. You'll still need liability insurance to help pay off your business debts.

Business Liability

Owning property, driving vehicles, and working with the public all come with a certain amount of risk. Plus, the size and type of projects you take on might increase your exposures. For example, solo architects and engineers that contract with bigger companies may have more professional liability concerns, as their clients stand to lose a lot of money if something goes awry.

You also have to consider your time and money, which tend to be large investments when it comes to design projects. What will your firm do if a client doesn't pay, for example? What happens when your project runs into unforeseen delays?

To get a better idea of the specific risks that you may face, take a look at this chart from "The Mitigation of Risk in Construction" report by McGraw Hill Construction. It details the risks associated with both public and private projects.

Most A/E firms have rigorous risk management assessment procedures in place. In this line of work, the losses are too high to go without such a plan. But it may be difficult for solo practitioners to evaluate risk without the quantitative analysis, forecasts, simulations, and other tools that bigger businesses have.

Luckily, other professionals outside your business can help you out. For instance, our agents at insureon, who are trained in insuring architects, engineers, and design professionals, can give your small operation a risk assessment. We can also seamlessly connect you with the insurance policies that address those exposures.